Rate cut still possible before year ends

Although the Bangko Sentral ng Pilipinas (BSP) has reduced the policy rates another 25 basis points only last week, one more such reduction remains possible before the end of the year.

This was learned from Rizal Commercial Banking Corp. lead economist Michael Ricafort who said such a cut cannot be ruled out, especially if the US Fed decides to unwind its short-term interest rates.

“The latest BSP decision to cut its overnight rates by 25bps is widely expected amid the recent easing trend in inflation and global crude oil prices remained relatively stable, with a net increase of $1 to $2 since the (Saudi attack),” Ricafort said in an email.

“Further cut/s in BSP/local policy rates remains possible especially if the US Fed Reserve cuts its key short-term interest rates further and if local GDP (gross domestic product) growth data remain relatively soft, moving forward,” he added.

According to him, the reduction would lead to lower borrowing or financing costs for businesses, consumers, government and other institutions, which will then help spur greater economic activities and accelerate demand for loans.

Earlier, BSP Department of Economic Research Director Dennis Lapid said they need to assess the necessary data such as inflation and the impact of the reduction in both the key policy rates and the banks’ reserve requirement ratio (RRR) before deciding whether a further cut before year end is necessary.

“We have two more meetings. We will look on (the) data and economic developments. We’ll wait for the third quarter GDP data,” Lapid said.

Earlier, the BSP reduced the banks’ RRR on the same day the 25 basis-point policy rate cut was announced on Thursday. This brings the deposit reserves for universal and commercial banks to only 15 percent from 16 percent.

Likewise, the deposit reserves for thrift and rural banks now stand at 5 percent and 3 percent, respectively. This compares against the previous 6 percent and 4 percent on the same.

The reduction in bank deposit reserves is seen to inject P110 billion additional peso liquidity to the financial system that hopefully translates to greater lending.